In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

… there were many mistakes made by numerous parties along the
way. At the core of it was that people bid prices up too high, which
is no different than any other major asset bubble such as the
1999-2000 Internet. Nobody complains when prices go up, but when they
eventually deflate, Wall Street is suddenly filled with criminals. In
the debate last night, “greed and corruption on Wall Street” was heard
every other second, but no politician saying it is ever called to
specify any act of criminality. That’s because there probably wasn’t
any. People simply lost money, which is never a happy event, but it’s
the nature of the market every single day — for every trade there is
a winner and a loser.

The appraisers weren’t accountable, the rating agencies were paid by
those they rated, Washington force-fed the system to lower the lending
standards, many financial institutions leveraged up, individuals
speculated in rising home prices and lost, lenders dropped the ball —
etc, etc, etc.

On a separate point, we hear from the V.Lenin/J.Carter ticket that
“For the top 5% of income earners, we would just be raising taxes to
where they were in the Clinton and Reagan years.” Apart from being
factually incorrect (they’re not counting social security, etc), that
argument doesn’t hold water anyway. 15 and 25 years ago, the U.S. had
some of the lowest taxes in the world, so when they increased to
narrow the gap, there were few places people, factories and capital
could flee. This time, however, we are surrounded by dozens of
countries with much lower taxes — Albania (10%), Estonia (13%), Hong
Kong (15%) Russia (17%) and many more such as Ireland and China. The
problem in the US now is that we are already dramatically overtaxed,
which would mean a tax increase would be catastrophic as capital and
business would flee rapidly. What’s the solution? Massive cuts in
spending, well beyond what anybody in Washington (except Ron Paul)
would ever dare talk about. The 3 big ones — Social Security,
Medicare and Medicare — need to be dramatically cut or even
abolished, because we are going to continue to lose our
competitiveness otherwise. The Federal budget is some $3 trillion per
year now, and it has to decline closer to the $1 trillion mark in
order for this country to be able to compete.